Pay-To-Play: McCutcheon v. Fec's Robust Effect on Federal and State Contractor Contribution Regulations

Transcription

1 Seton Hall University Seton Hall Law School Student Scholarship Seton Hall Law 2016 Pay-To-Play: McCutcheon v. Fec's Robust Effect on Federal and State Contractor Contribution Regulations Tyler C. Stearns Follow this and additional works at: Part of the Law Commons Recommended Citation Stearns, Tyler C., "Pay-To-Play: McCutcheon v. Fec's Robust Effect on Federal and State Contractor Contribution Regulations" (2016). Law School Student Scholarship. Paper

2 PAY-TO-PLAY: MCCUTCHEON V. FEC S ROBUST EFFECT ON FEDERAL AND STATE CONTRACTOR CONTRIBUTION REGULATIONS Tyler C. Stearns I. INTRODUCTION On April 2, 2014, the United States Supreme Court issued the opinion in McCutcheon v. FEC. 1 McCutcheon was among a series of cases involving campaign finance regulations which came into public consciousness following the well-publicized 2012 decision in Citizens United v. FEC. 2 McCutcheon involved a challenge to portions of the Federal Election Campaign Act of 1971 ( FECA ), specifically the portion of FECA that imposes aggregate limits on the amount of money individuals may contribute to candidates and parties in federal elections. 3 The McCutcheon plaintiffs argued that the aggregate limits violated their right to make political contributions, a right protected by the First Amendment. 4 Prior to the McCutcheon, decision, the aggregate limits imposed a $123,200 per election cycle limit on the total amount of money individuals may contribute to all federal elective candidates. 5 The question presented to the Court in McCutcheon was whether the aggregate limits of FECA were valid under the First Amendment. The Court s answer to this question undermines over thirty years of campaign finance regulation and jurisprudence; and arguably will have serious ramifications on influence of political contributions in federal and state elections. Announcing the opinion of the Court, Chief Justice Roberts reinforced that a citizen s right to participate in democracy through political contributions is protected by the First Amendment McCutcheon v. FEC, 134 S. Ct. 1434, 1436 (2014). 3 4 Buckley v. Valeo, 424 U.S See infra, Part III. 6 McCutcheon at

3 However, the Chief Justice emphasized that this right is not absolute, and Congress may impose certain limitations. 7 The Court s holding reasoned that the aggregate contribution limits were unconstitutional; stating that limits to political contributions are valid only if their purpose is to prevent quid pro quo corruption (or its appearance), and the regulation is closely drawn to meet that purpose. 8 Following the Court s decision, individuals can contribute money to any federal candidate within the base limits set forth in FECA. 9 Consequently, following the McCutcheon decision, an individual could theoretically donate in excess of $1.5 million dollars per election cycle. 10 For context, in 2010 Democrats and Republicans raised $1.5 billion for Congressional races. 11 Thus, if the aggregate limits were struck down prior to the 2010 election, 429 individuals contributing the approximate $1.5 million, maximum could have theoretically funded every winning Congressional candidate. 12 The previous example, while not representing fact or likely reality following the McCutcheon decision, it exposes the potential serious implications of the Supreme Court s decision. Those implications extend beyond the validity of the aggregate contribution limits in FECA and other regulations. 13 Outside of the increased dollar amounts stemming from the McCutcheon decision, the Court s refined analysis of permissible campaign finance regulations, which address quid pro quo corruption, raises questions as to the validity of pay-to-play regulations or regulations addressing contributions by government contractors. Pay-to-play regulations are designed to prevent individuals or companies contracting with the government See infra, Part II (discussing the Court s reasoning in upholding the base limits and delimiting the permissible amounts an individual may contribute to candidates and parties). 10 See infra, Part V. 11 Proposing an Amendment to the Constitution of the United States Relating to Contributions and Expenditures Intended to Affect Elections, 113 S. Rpt. 223, See infra, Part II. 3

4 from using monetary contributions to influence the award of future contracts and exert increased political influence. This Note argues that the McCutcheon decision will have far reaching, detrimental effects on campaign finance regulations, specifically focusing on pay-to-play regulations. This Note begins by examining the breadth of the protections the First Amendment provides to political contributions 14 Part I sets out the background and history of federal jurisprudence with respect to regulation of political contributions. Part II focuses on the Supreme Court s analysis of political contribution regulations in McCutcheon. Part III discusses and reviews prior state and federal pay-to-play regulations by applying the Supreme Court s analysis in McCutcheon. Part IV discusses the effect of campaign contributions on federal contract awards and how the McCutcheon decision implicates federal contractor contributions. Furthermore, Part V applies the McCutcheon decision to the federal and state pay-to-play regulations, and concludes that the Court s ruling in McCutcheon may invalidate or force reformation of federal and state payto-play regulations. Part VI analyzes the practical implications of the McCutcheon decision on campaign financing. II: HISTORY OF CAMPAIGN FINANCE REGULATION BUCKLEY V. VALEO No enemy of free government [is] more dangerous and none so insidious as contributions by corporations for political reasons. 15 President Theodore Roosevelt Addressing Congress in 1904, President Roosevelt underscored the threat of corruption arising from political contributions, calling for vigorous measures to eradicate perceived 14 See infra, Part III. 15 Theodore Roosevelt, President of the United States, Fourth Annual Message to the Senate and House of Representatives, available at 4

5 political corruption. 16 In his address, the President emphasized Congress s role in addressing political corruption, stating: [i]t is accepted that Congress has power under the Constitution to regulate the election of federal officers, including the President and the Vice President. 17 This includes the authority to protect the elective processes against the two great natural and historical enemies of all republics, open violence and insidious corruption. 18 In his annual address to Congress in December 1905, President Roosevelt echoed his previous calls for campaign finance regulations stating, all contributions by corporations to any political committee or for any political purpose should be forbidden by law; directors should not be permitted to use stockholders money for such purposes; and, moreover, a prohibition of this kind would be, as far as it went, an effective method of stopping the evils aimed at in corrupt practices acts. 19 Again in 1906, President Roosevelt urged Congress to enact a law prohibiting corporations from contributing to the campaign expenses of any party. 20 Congress responded in 1907 by enacting the Tillman Act, the first campaign finance law addressing political contributions. 21 The Tillman Act made it unlawful for national banks or corporations to contribute money to federal campaigns and opened the door for Congress to take a more pragmatic approach to campaign finance regulation. 22 Following the Tillman Act, Congress passed additional campaign finance reforms including, the Federal Corrupt Practices Act of 1925, the Hatch Act of 1939, the Smith-Connally Act of 1943, and the Taft-Hartley Act of Each of these Buckley v. Valeo, 424 U.S. 1 (1976) (White, J., concurring). 18 Buckley at 257 (quoting, Ex parte Yarbrough, 110 U.S. 651, 658 (1884)) (emphasis added). 19 Robert E. Mutch, Campaigns, Congress, and Courts: The Making of Federal Campaign Finance Law xvii (1988). 20 FEC v. Wis. Right to Life, Inc., 551 U.S. 449, 509 (quoting 41 Cong. Rec. 22 (1906)). 21 See Jaime Fuller, From George Washington to Shaun McCutcheon: A brief-ish history of campaign finance reform, WASHINGTON POST, April 3, 2014, 22 Fed. Election Comm n, Appendix 4: The Federal Election Campaign Laws: A Short History (accessed April 1, 2015), available at 23 Federal Corrupt Practices Act, 43 Stat (1925) (imposing disclosure requirements on House, Senate and primary candidates; requiring reporting of contributions over $100, and raising Senate expenditure limits to $25,000); Hatch Act of 1939, 5 U.S.C (empowering Congress to regulate primary elections and included 5

6 regulations was crafted with the goal of preventing corruption or the appearance of corruption, which arises from monetary contributions by individuals made in exchange for political influence. 24 However, between 1947 and 1971, Congress took little if any action to curb the growing influence of money in politics and did little to enforce the pre-existing regulations passed between 1907 and Notably, following Richard Nixon s election in 1969, the Clerk of the House of Representatives notified the Justice Department of twenty fund-raising Committees associated with now President Nixon that failed to file a single campaign finance disclosure report. 26 The Justice Department responded the following year. 27 In its response, the Justice Department announced that none of the violators would be prosecuted... given the history of the act and that enforcement would be unfair. 28 In other words, the Justice Department decided that because they had not previously enforced campaign finance reporting obligations, individuals should not be punished for failing to abide by the reporting regulations. 29 This Justice Department decision purportedly ended their passive approach to enforcement of campaign finance regulations as it declared future violators would be prosecuted. 30 The failure of Congress to enact more stringent campaign finance regulations, combined with the Justice Department s passive limitations on contributions and expenditures in Congressional elections); Smith-Connally Act of 1943 (expanding the scope of the Tillman Act to include unions among the entities prohibited from contributing money to federal campaigns); Taft-Hartley Act, Pub. L (1947) (prohibiting corporations and unions from making independent expenditures in federal political campaigns). 24 FEC, supra note See Melvin I.Urofsky, A Symposium on Campaign Finance Reform: Past, Present, and Future: Article: Campaign Finance Reform Before 1971, 1 ALB. GOV T L. REV. 1, (discussing Congressional infighting during this period which prevented the passage of additional campaign finance reform). 26 at

7 enforcement of the pre-existing regulations made it readily apparent that reform was necessary. Such reform emerged two years later with the passage Federal Election Campaign Act of FECA was a complete overhaul of federal campaign finance and election laws. FECA broadened reporting and disclosure requirements for political contributions, imposed limitations on contributions and expenditures, and created provisions for public financing of federal campaigns. 32 In 1974, Congress passed amendments to FECA, including increased limitations on contributions and expenditures, and critically created the Federal Election Commission; an independent agency charged with regulation and enforcement of the federal election laws. 33 FECA s wide-ranging reforms helped lift the veil on the use of money in political campaigns, but also raised questions as to constitutional implications of limitations on contributions and expenditures. In response to FECA and the 1974 Amendments, Senator James L. Buckley and Eugene McCarthy challenged the constitutionality of the contribution and expenditure limits, arguing that the regulations impermissibly abridged constitutionally protected First Amendment rights. 34 Buckley and McCarthy s challenge to FECA was the first time the Supreme Court was asked to evaluate the validity of contribution and expenditure limits and shaped future legislation and judicial review of campaign finance regulations. The expenditure and contribution limits in FECA implicated the First Amendment s protection on political association and political expression. 35 Discussing these rights in in NAACP v. Alabama 36, the Court recognized that effective advocacy of both public and private points of 31 See Jaime Fuller, From George Washington to Shaun McCutcheon: A brief-ish history of campaign finance reform, WASHINGTON POST, April 3, 2014 (explaining that FECA was amended in 1974 in response to the Watergate Scandal). 32 Buckley, 424 U.S. at Fed. Election Comm n, Appendix 4: The Federal Election Campaign Laws: A Short History (accessed April 1, 2-15), available at 34 Eugene McCarthy was a former Democratic Congressman and Senator from Minnesota. 35 Buckley at NAACP v. Alabama, 357 U.S. 449 (1958). 7

8 view, particularly controversial ones, is undeniably enhanced by group association. 37 With political association and political expression in mind, the Buckley Court expressed that FECA s contribution and expenditure limits operate in an area of the most fundamental First Amendment activities. 38 Thus, because the contribution and expenditure limits implicate First Amendment rights, the first question considered by the Buckley Court s review of the FECA regulations was to what extent the limits abridge First Amendment rights. The Court s analysis distinguished the effect the base and aggregate limits had upon the exercise of First Amendment rights. 39 FECA limited the permissible expenditures to a candidate to $1,000 per election. 40 The Buckley Court stated that the $1,000 limit appeared to exclude all citizens and groups, except candidates, political parties, and the institutional press from substantial use of important methods of communications. 41 The Court reasoned that this limitation on every citizens ability to exercise political speech inhibited political discussion and the quantity of political expression. 42 Such limitations, the Court found, substantially controlled the quantity and diversity of political speech. 43 Thus, because expenditure limits constrain political discussion and expression, the Court found that such regulations are subject to the exacting scrutiny applicable to limitations on core First Amendment rights. 44 The Court explained that under exacting or strict scrutiny, the government may regulate expenditure limits only if the regulation promotes a compelling interest and is the least restrictive means to further the articulated interest at Buckley at at U.S.C. 608 (e)(1) (1970 ed., Supp. IV). 41 See Buckley, supra note 20 (noting that a full-page newspaper advertisement in 1975 cost $6,971.04, well above the $1,000 expenditure limit). 42 Buckley, 424 U.S. at Buckley at (emphasis added). 8

9 Notably, the Court s review of contribution limits departed from the strict scrutiny standard applicable to the expenditure limits and led to a notably different conclusion respecting contribution regulations. 46 The Buckley Court reasoned that campaign contributions were a lesser restraint on protected First Amendment speech, and therefore contribution regulations should be subject to a different level of scrutiny. 47 Under FECA, individuals and groups were permitted to contribute up to $1,000 per election and party committees were permitted to donate $5,000 to a single candidate. 48 FECA further limited overall contributions by individuals and groups to all candidates to $25,000 per calendar year. 49 Its analysis, the Court noted that, a contribution serves as a general expression of support for the candidate s views, but does not communicate the underlying basis for the support. 50 According to the Court, the key difference was the communication aspect of the regulations. The Court reasoned that expenditures allow individuals to express in their own manner the reasons why they support a candidate, or the reasons they believe a candidate should be elected. Conversely, campaign contributions permit the symbolic expression of support evidenced by a contribution, but did not infringe the contributor s freedom to discuss candidates and issues. 51 This distinction led the Court to closely drawn scrutiny, a diminished yet rigorous standard of review to limitations on political contributions. 52 To survive strict scrutiny, an expenditure limit regulation must show (1) a compelling government interest and (2) employ the least restrictive means necessary to achieve the 46 Buckley at McCutcheon, 134 S. Ct. at U.S.C. 608 (b)(1)-(2) (1970 ed., Supp. IV) U.S.C. 608 (b)(3) (1970 ed., Supp. IV). 50 McCutcheon at Buckley, 424 U.S. at Buckley at 29. 9

10 compelling government interest. 53 Comparatively, contribution limits are subject closely draw scrutiny, where the State [must] demonstrate a sufficiently important interest and employs means closely drawn to avoid unnecessary abridgement of associational freedoms. 54 Thus, the Buckley court created a critical distinction for contribution regulations in applying closely drawn scrutiny. This level of scrutiny allows Congress and legislatures greater leeway in enacting regulations limiting campaign contributions, by permitting these regulations to abridge upon First Amendment rights so long as they do not unnecessarily abridge associational freedom. 55 Another product of the Buckley decision was the Court s finding that the prevention of quid pro quo corruption or its appearance qualifies as a sufficiently important government interest. 56 The Buckley court ultimately concludes that the campaign contribution regulations in FECA were valid because they employed means closely drawn to prevent quid pro quo corruption, and that such regulations did not unnecessarily abridge associational freedoms. 57 Future decisions helped solidify the Court s conclusions regarding the campaign contributions as permissible to prevent quid pro quo corruption and are discussed hereafter. Additional support for base limits on contributions can be found in Nixon v. Shrink. 58 Nixon involved a challenged to a Missouri state law that imposed limits on contributions by individuals to state office candidates to $275 and $1, Petitioners challenged the law, alleging that the contribution limits violated their First Amendment rights. 60 The Court upheld the Missouri limits; applying closely drawn scrutiny in holding that there is no reason in logic or evidence to doubt 53 See supra note Buckley at 25 (quoting Cousins v. Wigoda, 419 U.S. 477, 488 (1975)) U.S. 377 (2000). 59 Nixon at (Petitioners Complaint did not specify what First Amendment rights were violated, however the Court postulated that the regulation implicated freedom of speech and freedom of association). 10

11 the sufficiency of Buckley to govern the Missouri case. 61 The Court in Nixon reemphasized the reasoning in Buckley that, the prevention of corruption and the appearance of corruption was found to be a constitutionally sufficient justification, and found authority for Missouri s law and other state limits on contributions in the Buckley ruling. 62 Contribution limits withstood further scrutiny in McConnell v. FEC. 63 McConnell involved a challenge to the Bipartisan Campaign Reform Act of 2002 (BCRA). 64 The BCRA codified prohibitions on soft money donations, or donations solicited to a party or committee instead of to a particular candidate. 65 In McConnell, the Court upheld the soft money prohibitions despite petitioner s arguments that there was no concrete evidence of real or apparent corruption. 66 The Court reasoned that the soft money prohibitions prevented undue influence on officeholders judgment, and the appearance of corruption. 67 Critically, the McConnell court articulated that Congress interest in preventing quid quo pro corruption extends beyond simple cash-for-votes corruption. 68 The Court concentrated on evidence of access in exchange for soft money donations in finding that the contribution bans were sufficient to conclude that the soft money donations in the BCRA were a valid exercise of Congress prevention of the appearance of quid pro quo corruption. 69 The takeaway from the Court s decision in Buckley and later contribution regulation decisions was that Congress may enact limitations on political contributions, subject to certain at 379, U.S. 93 (2003) Stat McConnell v. FEC, 540 U.S. 93 (2003) (citing 2 U.S.C. 441i(a) (Supp.II)). 66 McConnell at (quoting FEC v. Colo. Republican Fed. Campaign Comm., 533 U.S.431, 441). 68 McConnell at

12 requirements. 70 The court determined in Buckley that regulations related to political contributions must (1) have the goal of preventing quid pro quo corruption or its appearance, and (2) the regulations must be closely drawn to meet that goal without unnecessarily abridging First Amendment or other constitutional freedoms. 71 This reasoning is repeatedly relied upon and upheld in later decisions, and Congress and state legislatures have utilized these conclusions in drafting campaign finance laws. 72 The contribution limits, while deemed valid by Buckley and cases challenging comparable contribution regulations, became the subject of further scrutiny thirty-five years later in McCutcheon. The Court s decision in McCutcheon agreed with the closely drawn scrutiny standard from Buckley validating the base contribution limits, but disagreed with the Court s conclusion in Buckley respecting aggregate limits on campaign contributions. 73 The McCutcheon decision and revised analysis of aggregate contribution limits changed the outlook on aggregate contribution limits and brings into question the constitutionality of comparable regulations. PART III: MCCUTCHEON V. FEDERAL ELECTION COMMISSION McCutcheon involved a challenge to the constitutionality of 2 U.S.C. 441a(a)(1) and 441a(a)(3) U.S.C. 441a(a)(1) addresses base limit contributions any person may make to individual candidate and political committee, limiting individuals to contribute $5,200 to a candidate, $32,000 to a national party committee, $10,000 to a local or state party committee, and $5,000 to a political action committee a(a)(3) provides for aggregate contribution limits an 70 Buckley, 424 U.S. 1 at Buckley at See Randall v. Sorrell, 548 U.S. 230, 235 (2006). 73 McCutcheon, 134 S. Ct at McCutcheon at U.S.C. 441a(a)(1). 12

13 individual may make over a two year period to all candidates or committees. 76 The aggregate contribution limit mandates that an individual may contribute up to $123,200 to candidate and non-candidate committees during a two-year election cycle. 77 The plaintiffs in McCutcheon challenged the constitutionality of the aggregate limits regulated by 2 U.S.C. 441a(a)(3), arguing that the aggregate limits are not closely drawn to prevent quid pro quo corruption. 78 By way of background, the district court dismissed Plaintiff s action, echoing Buckley in concluding that the aggregate limits in FECA survived First Amendment scrutiny because the Government had a legitimate interest in preventing evasion of the base limits. 79 In part, the district court reached this finding after considering a hypothetical situation whereby a single donor could contribute to multiple committees and those committees could thereafter transfer the money to a single committee, thus combining the contributions to exceed the base limits. 80 This purported loophole was foreseen as one example of how a donor may circumvent the base limits, and therefore justified the requirement for aggregate limits. 81 The Supreme Court disagreed with the district court s ruling. The Supreme Court s analysis began by distinguishing between the base limits and the aggregate limits. 82 Among the differences, the Court noted that the base limits are a restriction on the amount of money a donor may contribute to a specific candidate or committee. 83 By comparison, the aggregate limits impose restrictions on the number of candidates a donor may contribute to, subject to the limitations of the base limits. 84 The difference between quantity of 76 2 U.S.C. 441a(a)(3) McCutcheon at F. Supp. 2d 133, 140 (2012); see Randall v. Sorrell, 548 U.S. 126 (2006). 81 McCutcheon, 134 S. Ct at at McCutcheon at (emphasis added). 13

14 money an individual may contribute to a candidate and the quantity of candidates to whom an individual may contribute money became the critical distinction in the Court s ruling. 85 The issue facing the Court was whether a restriction upon the number of candidates a donor contributes to satisfy closely drawn scrutiny standard under Buckley. The Supreme Court concluded that when evaluating regulations which target political contributions such regulations are subject to closely drawn scrutiny, and must target quid pro quo corruption or its appearance. 86 Quid pro quo corruption suggests the notion of a direct exchange of an official act for money. 87 The hallmark of corruption is the financial quid pro quo: dollars for political favors. 88 In Buckley, the Court noted that the $25,000 aggregate limit imposed a restriction on the number of candidates and committees to whom an individual may contribute. 89 The Buckley Court considered the aggregate limits as modest restrictions on First Amendment speech and thereby permissible to prevent the appearance of quid pro quo corruption through circumvention of the base limits. 90 The McCutcheon plurality disagreed with the validity of the latter conclusion emphasizing that an aggregate limit on how many candidates and committees an individual may support... is not a modest restraint at all. 91 The Court considered that absent a sufficient nexus between the political contribution regulation and prevention of quid pro quo corruption, such regulation would therefore be invalid for impermissibly restricting First 85 McCutcheon at McCutcheon at 1441, (citing Citizens United v. Federal Election Comm n, 558 U.S. 310, 359). 87 McCutcheon, 134 S. Ct at Federal Election Comm n v. National Conservative Political Action Comm., 470 U.S. 480, 497 (1985) U.S. at McCutcheon at

15 Amendment speech. 92 The Court did not find a nexus between the aggregate limits and prevention of quid pro quo contributions. 93 The McCutcheon court reasoned that in simple terms the aggregate limits prohibit fully contributing to the campaigns of ten or more candidates, even if the contributions fall within the scope of the base limits. 94 Congress, by codifying this limitation, sets forth that the aggregate limits prevent quid pro quo corruption that may stem from contributing to multiple candidates or party committees of the same party. 95 The McCutcheon court, however, discerned that by creating the base limits, Congress demarcated the specific contribution amounts that raise an issue of quid pro quo corruption. 96 The Court postulated that spending large sums of money in connection with elections, but not in connection with an effort to control the exercise of an officeholder s official duties, does not give rise to quid pro quo corruption. 97 Furthermore, the Court disagreed with the argument that an individual who spends large sums may garner influence over or access to elected officials, raising the appearance of quid pro quo corruption. 98 The appearance of quid pro quo corruption, however, is applicable only to the narrow category of money gifts that are directed, in some manner, to a candidate or officeholder. 99 The Court noted funneling money to a particular candidate or party gives rise to quid pro quo corruption or its appearance and may be regulated. 100 However, according to the McCutcheon court, contributing money to a party or candidate within the amounts specified in the base limits does not Id; see McConnell v. FEC, 540 U.S. 93 (where the Court found that evidence that soft money donations raised an appearance of political corruption was sufficient to uphold the regulations prohibiting same). 94 McCutcheon, 134 S. Ct at McConnell at McCutcheon at

16 rise to an inference of quid pro quo corruption, and thus may not be subject to broad restrictions such as the aggregate limits in FECA. 101 In other words, the Court concluded that Congress, by codifying the base limits specified the amount of money which raises an inference of quid pro quo corruption. Thus, any contributions within the base limits are per se valid, and do not raise and inference of quid quo pro corruption. Absent a connection between aggregate limits and quid pro quo corruption, the Court reasoned that the aggregate limits are unconstitutional. Proponents for the regulations argued evidence of the appearance of quid pro quo corruption is difficult, if not impossible to find. 102 In response, the Court noted that the First Amendment requires us to err on the side of protecting political speech rather than suppressing it. 103 As a result of the court s analysis and conclusion respecting aggregate limits, undermines thirty-five years of Supreme Court jurisprudence, and raises questions as to the validity of federal and state pay-to-play regulations. Prior to the McCutcheon decision, the Court declined to overrule Buckley in Randall v. Sorrell 104. There, the Court emphasized that overruling Buckley would undermine the considerable reliance that Congress and state legislatures have placed upon its drafting of campaign finance laws. 105 The McCutcheon Court did not exhibit the same reticence and calls for refined analysis of federal and state pay-to-play regulations. Pay-to-play regulations involve restrictions on contributions permitted by individuals contracting with the government. Such regulations are drafted and enacted with the goal of preventing individuals who make political contributions from using those contributions to gain political favor. On its face, pay-toplay regulations appear specifically designed to prevent quid pro quo corruption. However after 101 McCutcheon, 134 S. Ct at FEC v. Wisconsin Right to Life, 551 U.S. 449, 457 (2007) (opinion of Roberts, C.J.). 104 Randall v. Sorrell, 548 U.S. 230 (2006). 105 at

17 McCutcheon, the question presented to legislatures and court s evaluating pay-to-play regulations is whether these regulations are closely drawn to meet their goal of preventing quid pro quo corruption. There multiple federal pay-to-play regulations, in addition to a vast array of state and local pay-to-play laws and ordinances. Recently, parties have challenged the federal pay-to-play regulations, in particular the federal contractor contribution ban and the Security and Exchange Commission s (SEC) Political Contribution Rule. The discussion of those challenges and analysis of the federal and state regulations follows. IV: FEDERAL PAY-TO-PLAY REGULATIONS Federal Contractor Ban on Contributions 2 U.S.C. 441c The Federal Contractor Ban on Contributions is codified at 2 U.S.C. 441c, and prohibits any person who contracts with the United States or any department or agencies of the United States from directly or indirectly making or soliciting contributions to any political party, committee, or candidate for public office or to any person for any political purpose or use. 106 The regulation within FECA, that defines a person to include an individual, partnership, committee, association, corporation labor organization, or any other organization or group of persons other than the federal government. 107 The regulation applies to contributions made in connection with federal elections, and applies only to the person who contracts with the government. 108 Of particular note are the limitations of the contribution ban is specifically tailored to the party contracting with the government only, and allows the contracting party to establish political action committees that are capable of making contributions which would otherwise be unlawful under U.S.C. 441c U.S.C. 441c(a) U.S.C. 431(11). 17

18 the regulation. 109 In 2012, federal contractors challenged 2 U.S.C. 441c in Wagner v. FEC, arguing that the regulation was unconstitutional under the First Amendment. 110 In Wagner, the plaintiffs alleged that the ban on political contributions to federal contractors violates their First Amendment rights and sought a preliminary injunction preventing enforcement of 2 U.S. 441c so that they could make contributions for the 2012 election cycle. 111 As noted in Buckley, regulations affecting political contributions implicate an individual s First Amendment right to freedom of speech and association. 112 The federal contractor ban on contributions clearly restricts federal contractors First Amendment rights by prohibiting them from making political contributions. Thus, because the federal contractor ban limits individual s First Amendment rights, the regulation must be closely drawn to prevent quid pro quo corruption, and may not unnecessarily abridge First Amendment rights. Emphasizing judicial precedent, the district court affirmed that there is no doubt that preventing pay-to-play deals or pressure on contractors to give or the appearance that either is occurring is sufficiently important to warrant restrictions on political contributions by federal contractors. 113 Simplified, it is clear to the district court that the contractor contribution ban was enacted to prevent quid pro quo corruption. This satisfies the district court s first inquiry regarding the validity of the regulation under closely drawn scrutiny. The second question presented to the court is whether the regulation unnecessarily abridged First Amendment rights. 114 The contribution limit at issue in Buckley and McCutcheon differs significantly from the contribution ban at issue in Wagner. Simply put, the FECA regulation in Buckley and McCutcheon U.S.C. 441c(a); see Wagner v. Federal Election Comm n, 854 F. Supp. 2d 83, 86; see also 11 C.F.R (a). 110 Wagner at See supra note 32; see also Beaumont, 539 U.S. at Wagner at

19 is a limit upon an individual s ability to make political contributions, whereas the federal contractor contribution ban is prohibition or outright restriction upon an individual s ability to make political contributions. The difference between the regulations at issue in Buckley and Wagner is the scope of the regulation and not the degree of infringement upon First Amendment rights. 115 Although an outright ban appears to impermissibly infringe upon First Amendment freedoms, courts prior to the McCutcheon decision repeatedly upheld contractor contribution bans as constitutional because of the close nexus between any contribution by contractors and actual or the appearance of corruption. In Green Party of Connecticut v. Garfield, 116 plaintiffs challenged Connecticut s ban on contractor campaign contributions as unconstitutional under the First Amendment. 117 Plaintiffs argued that a ban on contractor contributions is an overly broad restriction of First Amendment speech and therefore not closely drawn to prevent quid quo pro corruption or its appearance. 118 The Second Circuit upheld Connecticut s ban on contractor campaign contributions in part because the ban was a product of corruption scandals where public officials accepted gifts from contractors in exchange for state contracts. 119 The Second Circuit noted that a ban on contractor contributions may have been overbroad to meet the interest of actual corruption. 120 However according to the Second Circuit, the recent scandals brought to light the important interest of preventing the appearance of corruption, and justified the ban in light of this interest. 121 The D.C. Circuit in Wagner, followed the Second Circuit s reasoning in upholding the validity of 2 U.S.C. 441c, noting that because the ban was enacted in response to a history or evidence of corruption it passes Green Party of Conn. v. Garfield, 616 F.3d 189 (2010). 117 at Wagner, 854 F. Supp. 2d 83 at Green Party at at at

20 muster as closely drawn to prevent quid pro quo corruption and its appearance. 122 Furthermore, the court found that a ban on federal contractor contributions in no way stretches the imagination to envision that individuals might make campaign contributions to curry political favor. 123 Finally, the court noted that the judiciary owes special deference to legislative determinations regarding campaign contribution restrictions, and stated that there is less need for the court to interfere with legislative judgments where the persons affected by the ban have other meaningful avenues for political association and expression. 124 Despite the district court s conclusions, the reasoning is subject to further scrutiny in light of the McCutcheon decision and resultant analysis respecting regulations designed to prevent quid pro quo corruption and its appearance. In McCutcheon, the Supreme Court advised that absent evidence of direct quid pro quo corruption, the Court may regulate the appearance of corruption. 125 However, the appearance of quid pro quo corruption is applicable only to the narrow category of money gifts that are directed, in some manner, to a candidate or officeholder that in turn provides or may provide political favors or access in recognition of the monetary gift. 126 Critically, the Court emphasized that closely drawn scrutiny requires consideration of both the government interest balanced against unnecessary abridgment of First Amendment rights. 127 It is clear that regulation of the federal contractor contributions is a sufficient government interest to prevent quid pro quo corruption and 122 Wagner, 854 F. Supp. 2d 83 at See, e.g., Green Party, 616 F.3d 189, 193 (discussing corruption scandals in Connecticut that preceded ban); see also Ognibene v. Parkes, 671 F.3d 174, (2d Cir. 2012) (imposition of lower contribution limits on those who do business with New York City responded to actual pay-to-play scandals in [the city] in the 1980s ); Blount v. SEC, 61 F.3d 938, (D.C.Cir.1995) (specific evidence of quid pro quo corruption unnecessary because underwriters' campaign contributions self-evidently create a conflict of interest in state and local officials who have power over municipal securities contracts and a risk that they will award the contracts on the basis of benefit to their campaign chests rather than to the governmental entity ; risk of corruption is obvious and substantial ). 124 Wagner at McCutcheon, 134 S. Ct at McConnell, 540 U.S. 93 at McCutcheon at

21 its appearance, the inquiry by the Wagner court after McCutcheon should be does a ban on federal contractor contributions unnecessarily abridge First Amendment rights. Prior to McCutcheon, the district court concluded the answer was no, the federal contractor contribution ban did not unnecessarily abridge First Amendment rights. Following the McCutcheon decision, the answer to that question is a resounding yes. In its initial decision, the D.C. Circuit found that the ban on federal contractor contributions was closely drawn to prevent quid pro quo corruption or its appearance relying upon (1) the history and evidence of corruption, (2) deference to the legislature regarding the appropriateness of contribution restrictions, and (3) the avenues of political association available to federal contractors irrespective of the ban on contributions. 128 Following the McCutcheon decision, none of these justifications are sufficient for a finding that complete bans on federal contractor contributions are closely drawn to prevent quid pro quo corruption and its appearance. The Wagner court correctly found that a history of evidence and corruption underscores the notion that federal contractor contribution bans satisfy a sufficient government interest. However deference to the legislature, evidence of corruption, and the avenues of political association outside of political contributions do not support the conclusion that a complete ban on contributions does not unnecessarily abridge First Amendment freedoms and is closely drawn to satisfy that interest. The Wagner court stated that when evaluating whether a regulation is closely drawn, the court s duty is to assess the proportionality of the ban to the government s asserted interest in order to ensure that First Amendment freedoms are not impermissibly burdened. 129 On their face, Federal contractor bans move toward the most restrictive means, an outright ban, without consideration of more stringent regulation allowing federal contractors to exercise their First 128 Wagner, 854 F. Supp. 2d 83 at Wagner at

22 Amendment rights. The Wagner court states that the threat of corruption addressed by the provision at issue here is far from illusory, but instead provides a reasonable basis for restricting political contributions by federal contractors. 130 This statement is an example of the district court s reasoning, which was valid prior to McCutcheon, but subject to revised scrutiny post- McCutcheon. The district court relied upon the Second Circuit s reasoning in Green Party to conclude that a ban on contractor contributions is consistent with the First Amendment because, while a proportionally drastic measure, political contributions by contractors might create a perception of improper influence on state officials. 131 This reasoning is no longer valid following McCutcheon. In McCutcheon, the Court emphasized that the First Amendment requires us to err on the side of protecting political speech rather than suppressing it. 132 The McCutcheon Court emphasized that multiple alternatives are available to Congress which allow for appropriate regulation while simultaneously avoiding unnecessary abridgement of First Amendment freedoms. 133 In other words, there were less restrictive means available to Congress to achieve their goal of preventing quid pro quo corruption. A complete ban on contributions to any official, candidate, or party is overly broad, and if challenged, 441c would likely be considered an unnecessary infringement upon a contractor s First Amendment rights. If 441c is deemed invalid, such a finding would not preclude Congress from creating more specific restrictions on federal contractor contributions, but in its present form the federal contractor contribution ban does not pass muster under the McCutcheon analysis because it is unnecessarily infringes upon First Amendment rights and is not closely drawn to prevent quid pro quo corruption. Unlike the federal contractor contribution ban which is likely invalid following 130 Wagner at Wagner at See supra note McCutcheon, 134 S. Ct at

23 the McCutcheon decision, the SEC Rule 206(4)-5 is an example of a contractor contribution ban that is closely drawn to prevent quid pro quo corruption. SEC Rule 206(4)-5 The SEC adopted Rule 206(4)-5 to prevent quid pro quo corruption as it relates to investment advisers and individuals associated with investment advisors that provide investment advisory services to the government. 134 Rule 206(4)-5 was modelled after Municipal Securities Rulemaking Board s ( MSRB ) Rules G-37 and G-38 that the SEC believed significantly curbed pay-to-play practices in the municipal securities market. 135 The regulations do not ban contributions to any candidate or political party, but rather are more narrowly tailored to the officials which oversee or are potentially implicated in the award of the conflicting contract. 136 The SEC Rule involves five basic components: (1) a two-year ban on investment advisers accepting compensation for advisory services from government entities if disqualifying contributions are made; (2) a ban on directly or indirectly paying a third-party to solicit a government entity for investment advisory services; (3) a ban on soliciting or coordinating contributions to officials of government entities to which the investment adviser provides advisory services (or seeks to provide advisory services; (4) a ban on soliciting or coordinating payments to state or local political parties in jurisdictions where the investment adviser provides or seeks to provide advisory services; and (5) disclosure requirements of contributions and payments made by the advisor. 137 Compared to the federal contractor contribution ban, the SEC Rule components are more specific as to whom the investment advisors (contractors) are prohibited from making CFR (4) Fed. Reg. at 41, CFR (4)-5. 23

24 political contributions to. By including specific restrictions on the recipient of the contribution, the SEC Rule is more narrowly tailored to prevent quid pro quo corruption, and would pass muster under McCutcheon. The critical distinction between the SEC Rule and the federal contractor ban is that the SEC Rule only proscribes activity as it relates to contributions to officials of government entities which the investment advisor provides advisory services, or to political parties in jurisdictions where the investment advisor provides services. 138 The contribution restrictions are limited solely making contributions to officials or individuals that can influence the award of the government advisory contract. 139 Conversely, the federal contractor contribution ban prohibits contributions to any political party, candidate, or elected official in the federal government; irrespective of whether or not that the recipient of the contribution may have influence or effect on the award of the federal contract. Thus, the SEC Rule, while limiting exercise of certain First Amendment Rights, is narrowly tailored to address direct quid pro quo corruption by proscribing donations between the contractor and the specific politicians or officials which may award the contract. 140 Beyond the federal regulations addressing contractor contributions and pay-to-play, multiple states have enacted comparable legislation to combat the threat of corruption in the award of government contracts. One example is the New Jersey pay-to-play regulation, which is discussed and analyzed in the following section. V: NEW JERSEY STATE PAY-TO-PLAY REGULATIONS (emphasis added)

25 Governor James McGreevy introduced New Jersey pay-to-play regulations in 2004, issuing Executive Order No The Executive Order, later codified as N.J.S.A. 19:44A-20.4 provides that: [a] county, or any agency thereof, shall not enter into a contract having an anticipated value in excess of $17,500, as determined in advance and certified in writing by the county, agency or instrumentality, with a business entity, except a contract that is awarded pursuant to a fair and open process, if, during the preceding one-year period, that business entity has made a contribution that is reportable by the recipient under P.L. 1973, c.83 (C.19:44A-1 et seq.), to any county committee of a political party in that county if a member of that political party is serving in an elective public office of that county when the contract is awarded or to any candidate committee of any person serving in an elective public office of that county when the contract is awarded, and A business entity that has entered into a contract having an anticipated value in excess of $17,500 with a county, or any agency or instrumentality thereof, except a contract that is awarded pursuant to a fair and open process, shall not make such a contribution, reportable by the recipient under P.K. 1973, c. 83 (C. 19:44A-1 et sq.), to any county committee of a political party in that county if a member of that political party is serving in an elective public office of that county when the contract is awarded or any candidate committee of any person serving in an elective public office of that county when the contract is awarded, during the term of that contract. 141 Of note, the New Jersey regulation proscribes entities holding contracts in excess of $17,500 from making contributions over $300 to any county committee of a political party if the party is serving in elective office where the contract was awarded. 142 In enacting the regulation, the New Jersey State Senate stated that the purpose of the bill was to reduce the risk of actual or perceived corruption, and emphasized that such corruption may result from elected officials that award (or control the award) of the contract receiving contributions from business entities holding or seeking government contracts. 143 The constitutionality of the regulation was challenged in New Jersey v. 141 N.J.S.A. 19:44A Senate Statement to Senate Bill S2 (2004 N.J. Sess. Law Service 72, 76). 25

26 Soto 144, wherein the New Jersey Appellate Division upheld a prohibition on contributions by casino employees. 145 In upholding the pay-to-play regulation, the Appellate Division applied the Buckley test, requiring (1) a compelling state interest; and (2) that the regulation be sufficiently narrow and rationally related to the state interest. 146 As discussed in this note, the Supreme Court reformed the standard applicable to campaign contribution regulations in McCutcheon, requiring that the regulation (1) be enacted to prevent quid pro quo corruption or its appearance in the sphere of government contracting, and (2) is closely drawn to meet that goal. 147 Thus, if a party challenged the New Jersey regulations following the McCutcheon decision, would they pass muster as being closely drawn to prevent quid pro quo corruption? The regulations, on their face, appear narrowly tailored to prevent quid pro quo corruption by proscribing contributions from contractors to individuals that directly affect the award of the state contract. 148 Particularly, the regulations restrict contributions when an individual makes a contribution to officials, committees, candidates or political parties that control award of the contract, or serve in a district where the contract is being awarded. 149 Unlike the aggregate limits deemed overly broad in McCutcheon, preventing contributions from contractors to individuals or entities that are positioned to directly affect the award of the contract implicates direct quid pro quo corruption and is likely not an overly broad restriction on First Amendment speech. Thus, New Jersey s state pay-to-play regulations would likely pass muster under the McCutcheon analysis. 144 State of New Jersey v. Pedro Soto, 565 A.2d 1088 (N.J. App. Div. 1989) at See supra Part III. 148 Additionally, contractors may not contribute to individuals or office holders that serve the district to whom the contractor provides services. 149 See supra note